US inflation slowed unexpectedly in April on a yearly basis in the first full report since President Trump’s sweeping tariffs took effect.
The Consumer Price Index rose 2.3% in April from a year earlier, below March’s 2.4% annual increase, the Bureau of Labor Statistics said Tuesday.
On a month-to-month basis, however, prices rose 0.2% in April, ticking up from the 0.1% decline seen in March, according to the data.
Excluding volatile food and energy prices, the core CPI rose 2.8% from the year before and 0.2% from March.
“Even though tariff fears have calmed, more time is needed to see how the existing tariffs take shape and affect inflation and the economy,” Skyler Weinand, chief investment officer at Regan Capital, said in a note.
“Unless we start to see unemployment rise significantly, the Fed is likely to keep rates unchanged for the next six months,” he added.
While year-over-year inflation slowed, the rise in monthly inflation is the first possible sign of a hit from Trump’s trade war, which the Fed last week warned could reheat price increases and hammer employment.
However, Tuesday’s data is largely backward-looking, since the US and China announced on Monday a deal to temporarily slash tariff rates, quickly easing tensions between the world’s largest economies.
The agreement lowers US tariffs on Chinese goods to 30% from 145% and Chinese taxes on US imports to 10% from 125% for 90 days while the two nations continue negotiations.
“The uncertainty about what might happen after these temporary trade deals makes things difficult for the Fed since stagflation remains a risk,” Jeffrey Roach, chief economist for LPL Financial, said in a note.
“If the fog does not clear, the Fed might not be able to adjust policy in June,” he warned.
The Dow Jones Industrial Average fell 152 points, or 0.4%, while the S&P 500 and Nasdaq ticked up 0.6% and 1.1%, respectively, by approximately 10:10 a.m. ET as investors took in the softer-than-expected inflation data.
Shelter prices jumped 0.3% in April, accounting for more than half of the monthly inflation gauge’s increase, according to the Labor Department.
After falling 2.4% in March, energy prices rose 0.7% as jumps in natural gas and electricity offset a decline in gasoline prices.
Meanwhile, food prices fell 0.1%, with the index for eggs dropping 1.6% – though it still remained 49.3% higher than the year before thanks to massive bird flu outbreaks earlier this year.
High egg prices are also facing scrutiny from the Justice Department, which is investigating whether producers conspired to restrict supply, according to the Wall Street Journal.
Used car and truck prices declined 0.5%, the index’s second monthly drop in a row, while new vehicles prices remained flat.
Apparel prices fell 0.2% while medical care costs jumped 0.5%.
Central bankers have taken a wait-and-see approach to policymaking amid heightened uncertainty around Trump’s tariffs, keeping interest rates unchanged in the 4.25% to 4.5% range after their meeting last week.
“If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment,” said Fed Chair Jerome Powell in laying out the conditions that characterize stagflation without using the term.
In its policy note, the FOMC said that risks of higher inflation and unemployment have increased, and that some data has been impacted by “swings in net exports” — a nod to a shrinking GDP report last week as companies rushed to import goods ahead of Trump’s tariffs.
The Fed will be looking toward wholesale inflation data, set to be released Thursday morning. This producer price data is factored into the Personal Consumption Expenditures index, the Fed’s main inflation gauge.
